VZCZCXRO8557
RR RUEHRG
DE RUEHBR #0631/01 0901051
ZNR UUUUU ZZH
R 311051Z MAR 06
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 4963
INFO RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEANHA/FAA WASHDC
RUEAYVF/FAA MIAMI ARTCC MIAMI FL
RUCPDO/USDOC WASHDC
RUEHRI/AMCONSUL RIO DE JANEIRO 1786
RUEHSO/AMCONSUL SAO PAULO 6651
RUEHRG/AMCONSUL RECIFE 4533

UNCLAS SECTION 01 OF 02 BRASILIA 000631 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
EB/TRA FOR JEFF HORWITZ 
USDOC FOR 4332/ITA/MAC/WH/OLAC 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD 
 
E.O. 12958: N/A 
TAGS: EAIR EINV ECON CASC BR
SUBJECT: BRAZIL'S NEW AIR REGULATORY AGENCY FACES CHALLENGES 
 
Ref: Brasilia 146 
 
This cable contains business-sensitive information, please treat 
accordingly. 
 
¶1. (SBU) Summary. The National Civil Aviation Agency (ANAC) was 
formally inaugurated in a March 20 ceremony in Brasilia. Emboffs met 
with ANAC officials March 16 to discuss the agency's plans for the 
airline industry. Settled are issues like where the agency will be 
headquartered -- Brasilia -- and the powers it will wield, those 
which were once the domain of several Ministry of Defense agencies, 
including the ministry's soon-to-be defunct Civil Aviation 
Department (DAC). Unsettled are issues regarding funding, how it 
will interact with related government agencies and what to do with 
Brazil's ailing flagship airline VARIG, which is operating under 
bankruptcy-law protection. ANAC is closely examining the VARIG 
problem and hopes it can be settled soon. Other GoB entities worry 
that ANAC might poach on their turf. Leaders at INFRAERO, the 
parastatal that manages Brazil's airports, expressed concern about 
ANAC diverting both funding and political power from the 
organization. Ministry of Development, Industry and External Trade 
(MDIC) officials expressed concern about how ANAC could change the 
face of air regulation in Brazil. For their part, ANAC 
representatives plan to visit Washington to meet with FAA officials 
in April/May 2006 and post supports these efforts. End Summary. 
 
ANAC is Born 
------------ 
 
¶2. (SBU) The first new regulatory agency created under the Lula 
Administration, the National Civil Aviation Agency (ANAC) is now up 
and running. Its directors assumed office on March 20, 2006 when 
President Lula signed the agency's mandate in a public ceremony. At 
the ceremony, the President thanked the Department of Civil Aviation 
(DAC) for its role in bringing Brazilian civil aviation to this 
point, and directed ANAC to move it forward.  Emboffs met with ANAC 
directors Leur Lomanto and Denise Abreu on March 16 at their 
temporary headquarters at the Brasilia International airport. Our 
interlocutors noted that full ANAC operations will not begin until 
¶2007.  They said that DAC personnel, the majority of whom are 
military officers and enlisted men, will initially be subsumed into 
ANAC but then incrementally replaced with civilians; ANAC should be 
a completely civilian-staffed agency by 2012, barring delays. ANAC 
directors are planning a trip to Washington to visit the FAA in 
April/May 2006 to discuss regulatory and technical issues. 
 
The Trouble with VARIG 
---------------------- 
 
¶3. (SBU) The first and most troublesome item on the ANAC agenda is 
VARIG, the ailing Brazilian airline plagued by serious debt issues 
(USD 3 billion). ANAC views VARIG as a potential target for some 
"readjustments," according to Denise Abreu, and the agency plans to 
assign an expert to study VARIG's situation and then make 
recommendations to an ANAC review board.  During the March 16 
meeting, Abreu pointedly asked Ambassador Alexander Watson, a 
consultant for Boeing, if ANAC were to "reassign" VARIG routes to 
other Brazilian airlines, whether Boeing would transfer the aircraft 
currently under lease to VARIG to these airlines.  She implied that 
Boeing is at least partially responsible for many of VARIG's current 
financial woes, including the legal actions in U.S. courts seeking 
seizure of the carrier's leased aircraft. Ambassador Watson 
responded that he could not speak for Boeing, but that he could pose 
the question to Boeing management. 
 
Safety Issues 
------------- 
 
¶4. (U) Three recent incidents under investigation by DAC and 
INFRAERO show how much work ANAC faces. On February 13, just after 
takeoff from Sao Paulo Guarulhos Airport, a 5 inch by 7 inch, two 
pound piece of a VARIG Boeing 737 engine fell into an elderly 
couple's kitchen. Luckily, no one was hurt and authorities do not 
believe that Boeing holds any liability for the incident. The 
incident occurred after VARIG began implementing a restructuring 
plan to free up funding to bring back into service some planes 
previously out of commission due to safety reasons. 
 
¶5. (U) On March 22, at Sao Paulo Congonhas Airport, Brazil's 
busiest, a BRA Transportes (a small domestic carrier) plane skidded 
off the runway onto the taxiway during rainy weather after the pilot 
 
BRASILIA 00000631  002 OF 002 
 
 
turned sharply to avoid heading down an embankment and onto the busy 
road below. This incident occurred less than a week after the new 
head of INFRAERO disclosed that financial shortfalls would limit the 
organization's ability to upgrade airport facilities in Brazil. 
INFRAERO officials announced March 28 that Congonhas traffic will be 
cut 50% to allow for further upgrades, such as rubber and oil 
removal from the runways and runway expansion. Sao Paulo's Guarulhos 
airport will receive two-thirds of the diverted traffic and Campinas 
Viracopos airport, about 90 minutes away from Sao Paulo's center, 
will receive one-third.  The same night of the announcement, 
officials diverted a TAM Airbus plane with a hail-damaged nose cone 
from its planned landing at Congonhas to Guarulhos, citing the 
longer runway and better conditions in inclement weather. All of the 
incidents are still under investigation. 
 
Sometimes Hostile Colleagues 
---------------------------- 
 
¶6. (SBU) ANAC also faces financial challenges.  The DAC, most of 
whose functions ANAC is assuming, was funded out of the Ministry of 
Defense budget, but ANAC will not be.  Proposals to fund ANAC out of 
airport taxes and landing fees have drawn opposition from INFRAERO, 
the manager and operator of Brazilian airports, and itself primarily 
a military entity.  INFRAERO convinced members of the Brazilian 
congress that ceding 50 percent of the international flight airport 
taxes it currently keeps (the other half goes into the general GoB 
coffers) to ANAC would overburden INFRAERO and got this provision 
deleted from the legislation creating ANAC prior to passage.  The 
new head of INFRAERO, Brigadier Jose Carlos Pereira, has opined 
publicly that ANAC will compete with INFRAERO for GoB attention and 
funding. 
 
¶7. (SBU) Meanwhile, a Ministry of Development, Industry and External 
trade representative (MDIC) told emboffs that ANAC will "cause 
trouble" with the agency's new regulatory efforts to liberalize the 
airline industry, but was unspecific as to how ANAC might prove 
problematic. Finally, DAC officers at the Ministry of Defense told 
emboffs that the creation of ANAC has been its priority of late. 
The reassignment of profitable routes, of great interest to 
international and national carriers, and a priority prior to the 
ANAC legislation, has now taken a back seat. The Ministry's future 
role will focus on policy and air-traffic control while regulations, 
authorizations, registrations will fall under ANAC's purview. ANAC 
will also take over the duties of certifying aircraft, currently 
performed by the Aerospace Technical Center (CTA) in the Airforce 
Command. 
 
Comment 
------- 
 
¶8. (SBU) ANAC has gotten off to a bumpy start.   Although the fifth 
and final director has not yet been named, at least the 5-year 
period for completing the transition to civilian personnel seems to 
have satisfied the requirements of Brazilian law and concerned DAC 
officials.   While ANAC's permanent headquarters will be located in 
Brasilia - meaning that any diplomatic or official contact between 
the USG and that agency will have to take place in Brasilia -- the 
agency's final structure has not yet been decided.  Resolution of 
its funding situation will determine how much bite will accompany 
its bark and could settle how well it will relate to its peer 
agencies. Whether transfer of VARIG routes and Boeing planes to 
other operators can really occur is an open question.  In any event, 
pressing agenda items such as increased traffic, market efficiency 
and safety concerns, mean that ANAC will have little time to make 
adjustments.  Post reiterates its support for building this 
relationship and encourages FAA, TSA and others to reach out to ANAC 
during this critical phase of its development.  End Comment. 
 
Linehan